Ask Liz Weston

Get smart with your money

Liz Weston

Wednesday’s need-to-know money news

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Today’s top story: How one airline is prioritizing customer safety. Also in the news: Getting your money resolutions back on track, treating your third stimulus differently, and the IRS expands eligibility for $10,2000 unemployment tax break.

Spring Travel Ahead? One Airline Is Prioritizing Customer Safety
Delta is now the only major airline blocking middle seats on all domestic flights through the spring.

Make a Plan to Get Your Money Resolution Back on Track
It’s not too late.

Why You Might Treat Your Third Stimulus Check Differently
Immediate needs come first, then savings. Consider gifts to those in need and teaching your children about money.

IRS Expands Eligibility for $10,200 Unemployment Tax Break
Find out how the tax break works.

Tuesday’s need-to-know money news

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Today’s top story: IRS Free File and how to get free tax preparation or free tax help in 2021. Also in the news: How women investors can rewrite their financial futures, options for people who can’t afford their tax bills, and beware of lender’s mistakes in your credit report.

IRS Free File & How to Get Free Tax Preparation or Free Tax Help in 2021
Here’s where to get free tax software, free tax preparation and free tax help this year.

How Women Investors Can Rewrite Their Financial Futures
When preparing for a secure retirement, women can be disadvantaged. But careful planning and intentional actions can help reduce roadblocks to financial health.

5 Options for people who can’t afford their tax bills
If you can’t afford your tax bill, consider an installment plan or an offer in compromise if you qualify.

Beware of Lenders’ Mistakes in Your Credit Report
Another reason why it’s important to monitor your credit report.

Will you really run out of money in retirement?

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Many U.S. households retire without enough money to maintain their pre-retirement standard of living. Once retired, though, people often reduce their spending enough to make their money last, according to a recent study by David Blanchett, head of retirement research at Morningstar, and Warren Cormier, executive director of the Defined Contribution Institutional Investment Association’s Retirement Research Center.

“People are finding a way to make it work,” Blanchett says.

The findings challenge a common financial planning assumption that retirees’ spending will increase at the rate of inflation each year. But the research also indicates many people retire without a realistic understanding of how much they can safely spend. In my latest for the Associated Press, a look at running out vs. running short.

Q&A: Social Security and spousal benefits

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Dear Liz: My wife and I are both 66 and have not yet filed for Social Security. I don’t plan on filing until I am 70. Is my wife able to file for her own retirement benefit now, which is much lower than mine? And then when I file at 70 years, can she switch to the spousal benefit rate, without any type of penalty?

Answer: Yes and yes. This is one of the few instances in which people can still switch from one benefit to the other.

If you had already applied, your wife’s retirement benefit would be compared to her spousal benefit and she would get the larger of the two amounts. Since you haven’t applied, however, no spousal benefit is available. Your wife could receive her own benefit and then switch to the larger spousal amount once you apply at 70, when your own benefit has maxed out.

Also, as long as your wife has reached her full retirement age (66 years and two months, if she was born in 1955), she won’t face the earnings test if she continues to work. That test otherwise reduces benefits by $1 for each $2 earned over a certain amount, which in 2021 is $18,960.

Q&A: IRAs and tax considerations

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Dear Liz: I’ve been researching the backdoor Roth IRA and I am finding some conflicting information regarding taxes owed on the conversions. I have two sizable rollover IRAs and one small ($1,600) traditional IRA. Can I make an after-tax contribution to the traditional IRA and convert that to a Roth and pay tax only on that IRA or do I have to consider all three IRAs?

Answer: Sorry, but you have to consider all three. The tax on your conversion will be based on the pre-tax portion of all your IRAs combined, not just the IRA where you make your contribution.

Backdoor Roths allow people to get money into a Roth when their incomes are too high to make a direct contribution. Instead, they contribute to a traditional IRA and convert that to a Roth because conversions don’t have income limits. Conversions require paying taxes proportionately on your pre-tax contributions and earnings, however, so the technique may not be advisable when you have sizable pre-tax IRAs that will trigger a large tax bill.